‘Worst times of my life…’: Zerodah Nitin Kamat’s flagging India’s debt default

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India’s borrowing habits are reaching dangerous territory, warns Nitin Kamath, founder and CEO of Zeroda.

Small-ticket personal loans and credit card lending are on the rise, often driven by the powerful marketing of fintech applications. Kamath points out a worrying trend: “There is a growing deficit in this segment that cannot afford to take loans. These defaults started showing up in the number of banks and NBFCs only a few quarters ago. We will know the true extent of the problem in the next few episodes.

Kamat shared CRIF data showing how personal loans in India totaled Rs 13.7 lakh crore. Public sector banks account for 38 percent of this burden, followed by private banks with 33 percent and NBFCs with 24 percent.

However, it’s the meteoric rise in small-ticket loans—many of them under $10,000—that raises serious concerns. NBFCs dominate this segment, disbursing 94 percent of loans, and their share of new loans rose to 38.7 percent in the first half of FY25, up from 33.2 percent last year.

“The lowest hanging fruit and the best thing you can do with your personal finances is to pay off all high-interest loans, including credit cards,” advises Kamath.

He also highlighted the psychological toll of debt: “If you’re in debt, the psychological effects are everywhere…from your personal life to your workplace.”

Small-ticket loans are particularly problematic. Among borrowers with loans ranging from ₹10,000 to ₹50,000, nearly 29.3% had a credit score decline within six months of the loan. Shockingly, instead of freezing, these individuals took out 62.7% more loans, increasing their total debt by 37.6%.

Defaults are growing faster in smaller cities, with the percentage of delinquent loans in the 31- to 180-day range jumping from 6.8% to 8% annually. Defaults on loans under $10,000 within 360 days rose to 39.7%, compared to 24.5% last year.

Kamat reflected on his personal experience: “The worst time in my life was when I got into debt by spending money on things I didn’t need. The first personal finance lesson is to borrow only when you are sure that your income will exceed the cost of the money.

These trends occur against a backdrop of broader credit market expansion. The unsecured business loan segment, for example, grew by 43.5% last year, hitting Rs 7.8 lakh crore. But denials are on the rise in this category, especially in small towns where economic growth has not kept pace with credit expansion.

Kamat’s advice is clear: “Making sure you’re out of debt should be the first thing you do before saving and investing.”

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